Unlocking the Power of Interstate Transmission: How FERC Order No. 1920 Could Change the Game7/31/2024  Introduction Imagine a world where our electricity highways are as efficient and expansive as our interstate highways. In 1956, President Eisenhower revolutionized travel with the Federal-Aid Highway Act, which aimed to eliminate unsafe roads and traffic jams, creating an interstate expressway system that was declared “essential to the national interest.” Fast forward to today, and while our roads span the country, our electricity highways—our transmission systems—remain fragmented in some regions. With the rise of the internet and digital dependency, electricity is now more essential to our daily lives than transportation. Therefore, it's high time we gave our interstate transmission system the same priority as our interstate highway system. Enter Federal Energy Regulatory Commission (FERC) Order No. 1920, a new regulation aiming to modernize our electricity grid. But does it hit the mark? Let's dive in. The Need for a Robust Interstate Transmission System Think of interstate transmission like our interstate highways. They’re essential for moving goods across states efficiently and safely. Similarly, a robust transmission system is crucial for delivering reliable and affordable electricity. Yet, many states allow monopoly utilities to build inefficient transmission routes, causing electricity traffic jams and hindering competition in the marketplace for electric energy. This is where FERC steps in with Order No. 1920, aiming to clear these jams and improve our electric highways so that independent power producers, such as SREA’s members, can efficiently deliver low-cost renewable energy to customers across the country.  FERC Order No. 1920: A Step Forward On May 13, 2024, FERC issued Order No. 1920, a rule designed to overhaul how we plan and build transmission facilities. SREA is largely supportive but sees room for improvement. We joined a coalition of non-profit organizations in filing a Request for Rehearing and Clarification, arguing that some aspects of the order could be better aligned with the public interest. Key Areas for Improvement 1. Benefit-Cost Ratios FERC allows a benefit-cost ratio of 1.25:1 as a criterion for selecting Long Range Transmission Facilities (LRTFs). SREA argues this should be lowered to 1:1. Why? Because any project with a benefit-cost ratio of at least 1:1 is beneficial to the public. FERC’s current threshold could allow the exclusion of projects that offer significant net benefits, which doesn’t align with promoting the public interest. As outlined in SREA’s Comments, requiring a benefit-cost ratio threshold that is greater than 1:1 for LRTFs allows transmission owners and vertically integrated monopoly utilities to systemically “stymie competition in favor of expensive rate-based generation.” 2. Underestimating Benefits The current rule may enable transmission providers to underestimate project benefits. By adopting only seven of the twelve proposed benefits, FERC’s rule allows transmission providers to exclude important factors that could make a transmission project more viable. Considering the full life span of a transmission facility, which is approximately 40 years, benefits often extend beyond the initial 20-year timeline provided in Order No. 1920, further supporting the case for a 1:1 benefit-cost ratio. Closing the Loopholes FERC Order No. 1920 still carries forward some loopholes from its predecessor, Order No. 1000. One major issue is that transmission providers aren’t required to adopt a specific benefit-cost ratio or select LRTFs with the highest ratios. This can lead to the rejection of beneficial projects, undermining the goal of an efficient interstate transmission system. The Way Forward FERC's new rule presents a golden opportunity for states to collaborate on building a robust interstate transmission system. Even if FERC doesn't lower the benefit-cost ratio threshold to 1:1, state public service commissions can push for such changes within their regions. Early and active engagement in cost allocation discussions will be crucial. By working together, states can ensure the delivery of affordable and reliable electricity, benefiting everyone. Conclusion FERC Order No. 1920 is a significant step towards modernizing our electric highways. However, there’s room for improvement to ensure it fully serves the public interest. By addressing the benefit-cost ratio and closing existing loopholes, we can pave the way for a more efficient and reliable interstate transmission system. Just like our interstate highways revolutionized travel, a robust transmission network can transform our energy future. AuthorWhit Cox is the Regulatory Director for the Southern Renewable Energy Association.
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FERC’s Order 1920 Provides Transparency and Accountability for Longterm Planning Decisions By Andy Kowalczyk On May 13th, 2024, the Federal Energy Regulatory Commission (FERC) issued Order 1920 after hearing from a diverse array of stakeholders in the electric industry. From large electric utilities to small transmission-owning companies, power generation developers, consumer groups, industry experts, and state regulators responsible for approving electric transmission and power generation, FERC conducted a comprehensive survey of input leading to the final order. The final result acknowledges the necessity of long-term planning to maximize benefits and ensure consumers are not burdened with investments that do not benefit them. While FERC’s Order 1000 established the principle of ‘beneficiary pays’ for transmission projects qualifying for regional cost allocation, it did not specify which benefits were relevant to the project types paid for by beneficiaries. This omission left a significant gap for transmission planners who did not actively pursue multi-value or multi-benefit transmission planning. While planners like the Midcontinent Independent System Operator (MISO) and the Southwest Power Pool (SPP) have counted multiple benefits in the past using multi-value type planning - other regions like the Southeast have counted only the benefit of avoided local transmission investments. Even within MISO, southern member states have supported only a limited assessment of benefits for long-term transmission solutions that will be in service for at least 50 years.  As a result, for the decade since Order 1000 was issued, U.S. transmission planning largely remained focused on short-term needs and limited benefits. This is crucial context when considering Order 1920’s requirement for transmission planners to consider seven benefit metrics when engaging in Long-Term Regional Transmission Planning (LTRTP). This final list of benefits, informed by comments from transmission planners and industry experts, aligns closely with the scope of LTRTP, assessing quantifiable changes to the bulk electricity system over the long term, in line with the average 50-year minimum that a transmission facility is in service.  FERC’s 7 Benefits Explained Production cost savings A large benefit which is tracked in regional transmission planning efforts for most transmission planning regions (with the exception of those in the Southeast and Western regions of the U.S.) is the ability of new transmission to access lower cost options. This can manifest when transmission can access more affordable natural gas generation than coal, but it is especially prominent during our current era of energy transition when transmission can access lower cost wind and solar. Tracking this benefit is very important because it can help planners understand the most economic balance between transmission and generation investments, and how to maintain low prices for consumers. Avoided or deferred reliability transmission Local transmission investments cannot replace the need for longterm regional transmission solutions. Part of this is because of the short 5-10 year time horizon that these projects are focused on, but it is also because they often cover less physical distance than regional transmission. However, regional long term transmission can replace some local transmission solutions. This can be a smaller benefit, but nonetheless important to track. Reduced loss of load probability or reduced planning reserve margin Ever experienced a rolling blackout? There are a number of different ways it can happen, but not having access to power when the demand is high is a common culprit. There’s a tradeoff between building more generation, or transmission that can access more power generation capacity, and that’s an important benefit to consider. Order 1920 allows two options for this benefit - either count the reduction in loss of load, or blackout probability, or count the reduction in power generation reserves needed to avoid that outcome through the buildout of transmission that allows access to more regionally distributed power supply. Mitigation of extreme weather event impacts and unexpected system conditions There have been significant challenges to electric reliability due to the impacts of extreme weather events. Both extreme heat and cold can strain the grid and power plants beyond their capabilities, but there can also be systemic failures caused by parts of the grid failing. These are unexpected, or unpredictable contingencies, but they can be planned for, to ensure there’s a failsafe when they happen. As regional, long term transmission has a bigger impact footprint than more localized solutions, it’s important to consider the benefit they provide in mitigating the impacts of low probability, high impact extreme weather events, as well as unexpected system conditions that may arise across a larger footprint. Reduced transmission energy losses When focusing on regional transmission needs, the transmission solutions that are identified to solve long term needs on the bulk electric system are often those that can carry much more power over longer distances. Low voltage transmission is typically considered to be between 69 kV (69,000 volts) and 230 kV, and as power is carried at these voltages, there is a percentage of power lost along the way. The company American Electric Power provided data on this and found moving from 345kV - 500kV transmission resulted in a reduction from 4.2% losses to 1.3% respectively, with the highest losses at between 0.5-1.1% for 765kV lines. This is typically a small percentage, but over the long lifespan of a transmission investment, those losses can add up and so can the savings related to transporting more electricity with a new transmission solution that has a higher voltage. Capacity savings from reduced losses Just like there are energy savings from reduced transmission losses, there can be accumulated savings over the life of a long term transmission investment that can defer new investment in power generation. Decreased losses are a bit like an electricity piggy bank which over time saves so much in losses that it alleviates the need for new power generation investments. In other words, building long term regional transmission can mean that there are less gas power plants, solar or wind farms needed to keep the lights on. Reduced congestion due to transmission outages Transmission outages can happen for a number of reasons, but regionally planned transmission can alleviate their impact. By planning the transmission system longterm and regionally, transmission planners can build in optionality, which lowers the amount of traffic, or ‘congestion’ that the system experiences when having to redirect power flows due to transmission outages. Order 1920 requires long term regional transmission (LTRT) planning to consider transmission needs and benefits over a minimum 20-year time horizon, which is less than half of the average 50-year lifespan of transmission investments. SPP, which looks out 40 years in their Value of Transmission Report, exemplifies a more reasonable approach. SREA continues to urge MISO to adopt a 40-year planning horizon, especially for interregional planning between SPP and MISO. A mismatch in time horizons can lead to mismatched benefits between regions, hindering project approval.
Accurately accounting for all the benefits of long-term transmission investments ensures a complete picture of their value to state regulators responsible for approval. Ignoring relevant benefits can lead to costs eclipsing the benefits. Regulators need a full spectrum of benefits to understand what they are approving. MISO’s Multi-Value Project type, created in the late 2000s to integrate wind power in the Midwest, has demonstrated significant economic benefits exceeding costs, including resilience during 2021’s Winter Storm Uri. MISO President Clair Moeller stated that Multi-Value Project transmission lines, planned and approved over the last decade at a cost of around $6.5 billion, provided about $18 billion in benefits over three days of Winter Storm Uri. Planning for the worst system conditions is crucial, and Order 1920’s requirement for extreme weather sensitivities provides necessary insurance. These sensitivities ensure the grid can withstand dire circumstances and support better interregional planning by acknowledging low-probability, high-impact events. Both inside and outside of MISO’s footprint in the Southeast within the last 5 years, there have been marked challenges to the electricity system there. A system which is built almost entirely for short term needs within the utility territories there. This short sighted approach will need to adapt in coming years to extreme weather under Order 1920, which may provide an avenue towards better interregional planning as well. Having a larger pool of resources available across an area that may be larger than a storm impact is critical to reliability in the future, and by applying extreme weather sensitivities, planners can understand the benefits of ‘building a grid bigger than the weather.’ With Order 1920, transmission planning is changing for the better. In the coming year, transmission planners that have never engaged in LTRT planning will need to fill a very large policy gap when developing compliance plans, but that’s not the end of it. Transmission planning is iterative and needs to adapt to changes in state and federal regulations, power resource mix changes, demand, and other factors which FERC acknowledged in Order 1920. Revising forecasted scenarios is key to adaptation, and while FERC requires this happens every 5 years, SREA believes that it should be closer to every 3 years that scenarios are revised, consistent with the timeline that most utilities update their integrated resource plans (IRPs), which should include both generation and transmission. That being said, there is nothing in Order 1920 that stipulates transmission planners update scenarios sooner than every 5 years. Doing so would acknowledge the pace of change that the energy industry is experiencing. Solar and wind have declined dramatically in costs in recent years, and demand has increased for clean energy both from state climate policies as well as corporations seeking low cost options. Updating scenarios frequently can ensure that the transmission system is not under-serving of the demands of the future, and that a range of outcomes are planned for. For example, this year the Georgia Public Service Commission approved an updated IRP for Georgia Power Company within the standard 3-year IRP timeline to reflect updated load forecasts in light of an influx of customer demand in the state, including large data centers. It’s only natural that long-term transmission planning should be subject to timely updates to keep pace with changing utility plans related to demand and generation. If they don’t, it could lead to under-planning of the system which carries with it reliability challenges. Long-term planning is a lengthy journey, often taking 7-10 years from project identification to service. Order 1920’s concrete guidance on scenarios and benefits ensures that forward-thinking grid planning delivers the scenarios and benefits anticipated. |
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